Alliance Health’s fall from grace

Lauded in 2015 as the fastest-growing company in the state of Utah, Alliance Health has now achieved a spectacular fall from grace to the extent that the firm has filed for Chapter 11 bankruptcy.

A digital health and wellness company, Alliance Health describes itself as having a “unique approach toward helping people with chronic conditions to manage their ongoing treatment programmes, simply and successfully”.

However, although once profiled as one of Utah Business’ Fast 50 – a list of the 50 fastest-growing companies in the state – and described by Utah Business Magazine as “as one of the best companies to work for”, Alliance Health, in the space of two months, has experienced a federal raid, a line of credit closure, a bankruptcy filing, a chief executive resignation and job losses.

The firm’s difficulties began with its Salt Lake City headquarters being raided by federal investigators looking for evidence of fraud related to the sale of products to government health plans. It is understood the search involved the examination of Alliance Health packages sent or received by UPS and the US Postal Service, with investigators also perusing the company’s trash.

Although the US attorney’s office for Utah declined to comment on the raid and the ongoing investigation, a previous search warrant application filed in federal court indicated that the case involves “a scheme to defraud health care benefit programmes, resulting in payments for mail-order diabetic test strips under false and fraudulent pretences”.

The federal raid, in turn, led to Zions Bank closing the firm’s line of credit, a move which directly threatened the livelihood of the firm’s employees. In the bankruptcy court filing that followed, Zions revealed that it had extended a loan of $19.7m to Alliance Health in 2014 with a revolving line of credit of at least $9.3m. On the same day as the raid on the company’s headquarters, continued Zion, federal agents seized $1.2m from the company’s account.

Then, once Zion stated that it would look to have a receiver appointed to oversee operations, Alliance Health’s board of directors voted to file for Chapter 11 bankruptcy – a decision which quickly resulted in the resignation of Jeff Smith as chief executive, a position he had held since 2007. Making for grim reading, the bankruptcy filing confirmed that Alliance Health has debts of $50m to $100m, with Johnson & Johnson as its largest creditor ($38.9m), followed by Roche ($33.4m) and the state of Virginia ($25m).

The firm also announced that it has laid off 11 percent of its workforce (759 employees, 627 of which are based in Utah). In a bid to allay future fears, Mr Watkins was quick to inform employees that he did not anticipate any further job losses and was actively looking for ways to emerge from bankruptcy.

“Day-to-day operations are being overseen by management,” said Brian Watkins, Alliance Health’s director of corporate communications. “As part of the Chapter 11 reorganisation process, a trustee will be appointed by the court. Alliance Health’s management looks forward to working with the trustee to continue improving the quality of life for people with chronic conditions.”

Keen for the firm to reorganise, regain its footing and convince federal investigators, as well as the pharmaceutical sector, that Alliance Health has not been involved in any wrongdoing, Mr Watkins concluded: “The company has and will continue to cooperate fully with the government’s inquiry. It is our hope and expectation that we will soon be given an opportunity to address the government’s concerns. Alliance Health is continuing business operations and expects that the reorganisation process will help put the company on a strong path forward.”